Over the past several years, there has been a growing cry from the business sector about a menacing plague rising in the form of patent litigation originated by non-practicing entities, more commonly referred to as “patent trolls.” Big business, academicians, practitioners and politicians alike are demanding that our patent system be reformed to address this parasite to American capitalism. Lately, it appears that there has been an all-out attack on this professed scourge of the business world, from the White House, to the halls of Congress, to the United States Supreme Court, and even to various State Houses and Attorneys General across the country. Now we have to ask: Has the patent troll seen its time come and go?
Since passage of the America Invents Act, there have been no less than 12 bills presented in Congress directed at curbing perceived abuses of the U.S. patent system, particularly in enforcement of patent rights. Several changes to the Patent Act, including discovery reform, heightened pleading requirements and amending the Patent Act’s fee shifting provisions to a loser-pays system, are all on the table. Even a cursory view of the proposed amendments show they are principally directed at curbing perceived abuses by patent trolls.
In addition, at least nine states including Vermont, Oregon, Wisconsin, Georgia, Virginia and Missouri, have either passed or are considering legislation directed at curbing the rise in mass mailing demands from trolls for patent license payments. Generally, these legislative enactments make it a crime to send patent licensing demands that contain false or misleading information. Wisconsin, for example now requires any notification seeking enforcement of a patent to include comprehensive patent information including detailed facts forming the basis for the infringement allegations and an identification of any pending court or administrative proceeding related to each asserted patent. In addition, states are empowering their attorneys general to enforce the provisions of their anti-troll laws with both civil and criminal action.
Earlier this year, President Obama himself unveiled a slate of initiates directed at cracking down on the so-called patent trolls, focused primarily on improving patent quality.
But perhaps the biggest blow to trolls came on April 29, 2014, when the Supreme Court handed down two highly anticipated decisions which makes it easier for a wrongfully accused defendant to recover its attorneys’ fees in patent litigation. In short, the Court struck down the Federal Circuit’s standard requiring “objectively baseless” litigation brought in “subjective bad faith” for a trial court to award the prevailing defendant attorneys’ fees under 35 U.S.C. § 285. These decisions, Octane Fitness, LLC v. Icon Health & Fitness, Inc., No 12-1184 (2014) and Highmark Inc. v. Allcare Health Management Systems, Inc., No 12-1163 (2014), are of particular importance as they lessen the evidentiary burden on those seeking a fee award, grant trial courts more discretion to award attorneys’ fees to prevailing parties, and at the same time remove the Federal Circuit’s unbridled oversight in reviewing such decisions.
In Octane Fitness, the Court defined Section 285’s term “exceptional case” as “that standing out … from others with respect to the substantive strength of the party’s litigation position … or the unreasonable manner in which the case was litigated.” According to the Court, the Federal Circuit’s existing standard was “overly rigid” and construed Section 285 so narrowly as to render it largely “superfluous.” Now, a district court is directed to review the “totality of the circumstances” in a particular case and is empowered to award fees under Section 285 even when the loser’s conduct is “not necessarily independently sanctionable,” or where the court determines the case presented “either subjective bad faith,” or where the claims raised were “exceptionally meritless.”
Even more important to those defending against a NPE’s assertions, the Court rejected the requirement that a party prove its entitlement to fees by “clear and convincing” evidence. Under the new pronouncement, “Section 285 demands a simple discretionary inquiry.”
To add insult to injury, the Federal Trade Commission recently initiated a study of patent assertion entities (another fancy term for trolls) to investigate whether and how big of a problem trolls are to American enterprise. The FTC is said to be monitoring the marketplace looking for activity that might arise to unfair or deceptive acts or unfair methods of competition using the agency’s consumer protection authority.
Perhaps this perfect storm of actions has not been a coordinated attack on trolls per se. However, the collective impact will no doubt have a chilling impact on NPEs on a go-forward basis.